The IRS Gave $1 Million in Bonuses to Employees Who Didn’t Pay Their Taxes

By Eric Katz

April 22, 2014

More than 1,100 employees at the Internal Revenue Service received nearly $1.1 million in cash bonuses over two years despite not paying or underreporting their taxes, according to a new report.

In total, about 2,800 employees who were involved in misconduct that resulted in disciplinary action received a total of $2.8 million in bonuses between October 2010 and December 2012, the Treasury Inspector General for Tax Administration found. In addition to the cash awards, disciplined employees received 27,000 hours of extra paid time off and within-grade step increases, within one year of being reprimanded.

The IRS doesn’t consider tax compliance or disciplinary actions when doling out bonuses or other awards, the auditors found, except for employees in the Senior Executive Service. The federal government has not issued any guidance requiring agencies to factor in tax compliance when determining bonuses, but the 1998 IRS Restructuring and Reform Act required any delinquent employee to be terminated.

While the inspector general said giving tax delinquent employees bonuses is not technically prohibited, it “appears to be in conflict with the IRS’ charge of ensuring the integrity of the system of tax administration.”

IRS employees with tax issues -- which included understatement of tax liabilities, late payment of taxes and underreporting of income -- received more than 10,000 hours in time off awards, and 69 employees received step increases. Other disciplined workers receiving bonuses included those who misused government travel cards, violated drug or violence policies, and had other fraud issues. Disciplinary actions against those employees included written reprimands, suspensions or removal.

TIGTA recommended the IRS’ human capital officer should create a policy guidance to ensure the agency weighs disciplinary actions -- especially those taken against tax delinquents -- when awarding bonuses, which the IRS agreed to.

Agency officials told the auditors their collective bargaining agreement with the National Treasury Employees Union stated disciplinary action against an employee should “not preclude a performance award that would otherwise be granted,” though the agency agreed to look into the feasibility of changing the policy.

The issue of IRS bonuses previously came to light when the agency announced plans to cancel the awards entirely, but has since agreed to reinstate them.